Archive for the ‘fuel quality’ Category

A few days ago, China’s National Development and Reform Commission (NDRC) announced a new pricing policy for higher quality fuels. The policy calls for the prices of China IV gasoline and diesel (50ppm sulfur content) to be increased by 290 and 370 RMB/ton, respectively. The prices of China V gasoline and diesel (10ppm) are to be raised a further 170 and 160 RMB/ton, respectively. The new pricing changes are designed to encourage and assist China’s refineries to meet the fuel quality improvement timeline announced by the State Council earlier this year. That timeline calls for nationwide supply of China IV gasoline by the end of 2013, China IV diesel by the end of 2014, and China V gasoline and diesel by the end of 2017.

The pricing changes appear to be the first steps in implementing State Council calls in October 2011 and February 2013 to use progressive fiscal policy to encourage the supply of higher quality fuels. Additional fiscal policies, for example a fuel tax adjustment differentiated by fuel quality, will likely be announced separately by the Ministry of Finance (though the timing of any additional MOF policy announcement is uncertain).

To understand better and contextualize what the NDRC pricing numbers actually mean, let’s look at the answers to some relevant questions:

1) What does it mean for the NDRC to set the price of fuel per ton?
The price of fuel in China is controlled by the NDRC, rather than being market-driven (though China has been slowly revising its pricing policy to better reflect the international price of crude). The NDRC sets the prices, per ton, to be paid to refineries in China for a variety of different petroleum products including gasoline and diesel used in motor vehicles.

2) How is the per-ton price of fuel linked to the per-liter cost to consumers at the pump?
Changes in the per-ton prices set by the NDRC usually directly result in changes in per-liter prices at the pump. For example, in their 9/13 regular fuel price adjustment notice, the NDRC announced the per-ton price change while also directly estimating the impact on prices at the pump. But in that case, the price changes were due to recent changes in the international crude price, a slightly different case.

Regarding the upgrading to China IV and V fuels, the NDRC explicitly stated in a follow-up Q&A that refineries and consumers should both bear a portion of the cost of the higher quality fuel. Although the NDRC has not detailed what those portions should be, the recent announcement implies that the cost burden to be absorbed by the refineries is not included in the announced price changes. This would imply that the primary burden of the additional price will be passed on to consumers. Even so, in their original announcement, the NDRC noted that additional subsidies and fiscal incentives may still be used to ensure that the cost burden of the higher quality fuel is not too great, especially for poorer consumers. Therefore, it’s unclear now what the final per-liter pump price increases will be.

3) What is the current price of fuel in China?
The price of fuel varies by region in China. The current, per-ton prices for gasoline and diesel in China are around 9500-9700 and 8700-8900 RMB/ton, respectively. (Note: the prices are higher in cities like Beijing and Shanghai which have already upgraded their fuel quality.)

A ton of gasoline yields about 1379 liters. A ton of diesel, which is denser, yields about 1190 liters. Assuming average nationwide per-ton prices of 9600 RMB for gasoline and 8800 RMB for diesel, we can roughly estimate per-liter prices of about 6.96 RMB/liter for gasoline and 7.4 RMB/liter for diesel ($4.35/gallon for gasoline and $4.62/gallon for diesel). (Note: the the WSJ reported Tuesday slightly lower nationwide weighted average pump prices of $4.21/gallon (gasoline) and $4.36/gallon (diesel).)

4) If the increased price per ton is passed entirely to consumers, what will the impact be on prices at the pump?
The total NDRC price increases for upgrading from China III to V gasoline and diesel are 460 and 530 RMB/ton, respectively. This is equivalent to 0.33 RMB/liter (0.21 USD/gallon) for gasoline and 0.45 RMB/liter (0.28 USD/gallon) for diesel. If these price increases are entirely passed to consumers, they will result in cost increases of about 4.8% for gasoline and 6.0% for diesel.

5) How did the NDRC determine the price increases?In the Q&A posted on their website, the NDRC explained that the price increases were based on comprehensive investigations and audits of Sinopec and PetroChina refineries which have already been upgraded to be able to produce China IV and V fuel, as well as experience from Beijing and Shanghai. (Beijing has already implemented China V fuel, while Shanghai is currently transitioning to China V.) The NDRC’s nationwide price adjustments for the China III->V transition are identical to the price adjustments used in Beijing and Shanghai for upgrading from China II to China V.

6) Are the price changes enough to cover the increased cost of refining higher quality fuel?
A 2012 ICCT study suggested that the additional cost to produce China V (10ppm) fuels in China would be just 0.04 and 0.11 RMB/liter for gasoline and diesel, significantly less than the NDRC’s announced price increases. This implies that the announced price adjustments should be way more than adequate to cover the required refinery upgrades and increased production costs for China V fuel. Even before additional fiscal policy measures from MOF are implemented, this pricing certainty will be instrumental in incentivizing China’s refineries to move ahead with the upgrades in order to meet the fuel quality timeline.

7) What about compliance and enforcement?
Finally, it’s important to note that the NDRC announcement included an entire paragraph on the importance of and mechanisms for ensuring compliance and enforcement of the fuel quality. In addition to asking multiple ministries (MEP, MOFCOM, SAIC, AQSIQ, NEA, and others) to work closely together, the NDRC even calls on the media and public to play a role in supervising improvement efforts and calling out illegal activity. Combined with the price increases, this further underscores the Chinese government’s deep commitment to ensuring the fuel quality timeline is met and commensurate air quality improvements are achieved.

Over the past weekend, poor meteorological conditions contributed to a severe accumulation of air pollution in Beijing and hundreds of other cities in northern and eastern China. The extreme pollution was the worst in recent memory, yielding hundreds of media reports both within China and around the world. In addition, tens of millions took to Twitter and China’s Twitter-like service, Weibo, to post their thoughts and complaints. Unfortunately, such extreme pollution accumulation episodes are common in Beijing. And even when meteorological conditions are good, average pollution levels in Beijing are still unacceptably high. Until China takes critical steps towards reducing emissions, poor average air quality and occasional “crazy bad” episodes will continue.

Vehicles are a critical source to control
Vehicles are typically by far the largest source of human exposure to air pollution in densely packed urban areas. Plus, the contribution of vehicle emissions to air pollution in China is increasing as the population of motor vehicles in Beijing and around China continues to grow rapidly. Implementing stringent controls to mitigate the pollution impacts of China’s motor vehicles must be a key priority in parallel with controlling other sources such as factories and power plants.

Short-term actions to control motor vehicle emissions in China
Two simple steps could make a huge and near-term difference in improving air quality in Beijing and throughout China, while simultaneously demonstrating the new Chinese government’s commitment to reducing pollution emissions:

1) Immediately issue new fuel quality standards with supporting fiscal policies to reduce nationwide diesel sulfur levels to below 10 parts-per-million (ppm). Because high sulfur levels in fuel can poison advanced emission control technologies, improving fuel quality, especially reducing sulfur levels, is a critical prerequisite to introducing more stringent vehicle tailpipe emission standards. In 2011, China’s State Council announced that preferential fiscal policies would be utilized to encourage the supply of higher quality fuels nationwide. However, these fiscal policies have not yet been issued; a new fuel quality standard is stalled in the review phase; and nationwide diesel fuel sulfur levels continue to stagnate at unacceptable levels of 350ppm or higher. Resolving the fuel quality issue is a critical step to facilitate continued progress in vehicle emission control in China.

2) Ensure that the China IV truck and bus emission standards are implemented this year without further delays. China’s next stage nationwide tailpipe emission standard for trucks and buses, called “China IV” (equivalent to “Euro IV”), aims to cut emissions of PM and NOx from diesel vehicles by 80% and 30%, respectively. However, because these vehicles need to be fueled with higher quality fuel which is not yet supplied nationwide, MEP has twice delayed the introduction of these standards across China. The current implementation date is July 1, 2013. In parallel with resolving the fuel quality issue, China should commit to introducing these standards without any additional delays.

Medium and long-term action to control emissions from motor vehicles
The aforementioned short-term, immediate actions will not be enough to solve China’s long-term motor vehicle emissions problems. Last month, China laid out a number of impressive medium-to-long-term regional air quality improvement actions in its “12th Five-Year Plan for Air Pollution Prevention and Control in Key Regions.” While the plans outlined in the document represent significant progress, the plan does not call for the most important step China can make towards long-term control of vehicle emissions: establishing a clear nationwide timeline for the introduction of global best-practice “China VI/Euro VI” vehicle tailpipe emission standards. Only with the introduction of these standards will diesel trucks and buses – some of the most polluting vehicles on the road – be required to install particulate filters to reduce >99% of PM2.5 particle emissions. Filters belong on cars, not people.

Monitoring and reporting: a recent success story, but only the first steps
In the fall of 2011, public outcry over a series of heavy pollution episodes in Beijing was fanned by social media into enormous public pressure on Chinese authorities to respond. They did. In February 2012, China’s Ministry of Environmental Protection (MEP) issued two major new regulations: a revision to the ambient air quality standards to include PM2.5, and a new definition of China’s Air Quality Index. By the end of the year, China had completed and began operating a network of real-time PM2.5 monitors in 74 cities through the country. The Chinese government deserves praise for these important steps towards air pollution data transparency.

However, air quality monitoring and reporting are only first steps. Now the challenge is how to achieve rapid and significant emissions reductions in order to improve urban air quality. The above three steps – rapid improvement of fuel quality, introduction of China IV standards for trucks and buses this year, and establishment of a clear timeline for early introduction of China VI – will make huge differences in reducing toxic air pollution in Beijing and throughout China. In fall 2011, the public debate led directly to new standards on air quality monitoring and reporting. It’s time now to turn the current pressure towards the more fundamental issues of how and when to cut emissions themselves.

Graduate school has prevented me from posting much over the last few months, but with classes now over I hope to play catch up and begin to post more regularly again.

For starters, I updated the links on the standards page of this blog; this includes fixing broken links and adding a few new ones.

Perhaps most notable is the addition of new fuel quality standards for all of Guangdong province. The new standards, called Guangdong IV (“粤IV”), apply to both gasoline and diesel, and took effect on 6/1/10. The standards call for maximum of 50 ppm sulfur level for both gasoline and diesel. Lowering sulfur levels in fuel, especially diesel fuel, is a critical step towards the introduction of the cleanest vehicle technologies. I will post separately on this. In the meantime, here are links to the standards (Chinese): Guangdong IV gasoline － DB44/ 694-2009; Guangdong IV diesel － DB44/ 695-2009.

In May of this year, the State Council announced that a new diesel fuel quality standard would be mandated by 2010, but no date was given. This SAC notice may be our first indication that China intends to implement China III quality diesel fuel (350ppm sulfur content) nationwide on January 1st.

Unfortunately, I can’t seem to find a full version of the standard; it seems unusual that the text of a (theoretically) issued standard is not available. Let’s not celebrate until we read the full text, but if China does in fact mandate nationwide 350ppm sulfur diesel fuel at the beginning of next year, this is a huge win for air quality and the introduction of more advanced diesel emission control technologies.

Yesterday, China’s State Council announced the “Petrochemical Industry Restructuring and Revitalization Plan” (Chinese only) which mandates nationwide China III quality gasoline fuel by 2009 and nationwide China III diesel fuel by 2010 (2009年车用汽油全部达到国Ⅲ标准，2010年车用柴油全部达到国Ⅲ标准). The announcement also says that any fuels not meeting these standards may not be sold into the marketplace (严格执行油品质量标准，严禁达不到国家规定标准的油品进入市场) after the implementation dates.

As far as I can tell, for gasoline fuels, this announcement merely confirms existing standards and implementation dates. However, for diesel fuel, this is a big deal, due to implications on the timeline for improving diesel fuel quality.

The specific issue I’m referencing here is fuel sulfur content. Lowering fuel sulfur content is critical for reducing vehicle emissions and allowing implementation of advanced vehicle emission control technologies. (Sorry I don’t have time to write more on this right now; some background in this post.)

The China III fuel quality targets for sulfur content are 150ppm for gasoline and 350ppm for diesel. Although the timeline for reducing gasoline sulfur content to 150ppm has been fixed for some time (by GB17930-2006), there was, until now, no confirmation of the timeline for reducing nationwide diesel sulfur content to 350ppm. As such, this represents a concrete and important step towards the desulfurization of China’s motor fuel.

More analysis / commentary to come, and a link to the final standard when it is formally released (as opposed to just being announced by the State Council). For those of you who want to keep track at home, I’ve recently discovered that you can search planned and upcoming standards on SAC’s home page, by clicking on the 国家标准计划查询 link. In this case, searching for 车用柴油 will show you standard plan 20075424-T-469, which is in the 报批阶段, or final draft for approval, stage.

Lastly, here’s a table, as far as I understand the current situation, showing nationwide fuel sulfur content in China:

About Me

I am an American engineer who works on clean transportation for China. I was based in Beijing for nearly seven years, but now I live in San Francisco. This blog is dedicated to exploring miscommunication between China and the West on issues of the environment and beyond.

Contact me at livefrombeijing at gmail dot com.

If citing or linking to this blog, please be mindful of the disclaimers.